- 44 - N.S.W. Power and the on/off Resources Boom Jim Falk and Graham Larcombe The crlS1S that developed in the New South Wales electrical power system over 1980-82 was unmistakeable. But the reasons for it and its long term implications are less obvious. In this article we examine some of the symptoms of the crisis, their causes, and the political implications of the crisis itself. SYMPTOMS The crlS1S displayed its first public symptoms in May 1981. As freezing cold evenings pushed electricity demand up to near-record levels in both NSW and Victoria, supply faltered and restrictions and blackouts erupted in both states. In NSW, load shedding plunged suburbs of Sydney, Newcastle and Wollongong into darkness. At least for NSW it was no freak event. A few weeks later another surge of blackouts caused disruptions and losses. They were the first blackouts in 27 years ip NSW due to a shortage of capacity, as opposed to industrial disputes. 1 But they were only the beginning. By late November it was clear that major plant failures at the Liddell power station had again brought the state to the brink of serious power cuts. Generating units totalling 1.5GWe were already out of action and another was operating at low power. The state had no reserve capacity and was depending on Snowy Mountain hydro-electricity to maintain supply.2 Two weeks later, on 4 December, the state Minister for Energy, Paul Landa, was forced to impose power restrictions, limiting the use of domestic appliances and domestic and commercial lighting and airconditioning. 3 The restrictions ran for two weeks. 4 The government blamed them on 800 maintenance workers who had taken .strike action in protest against lack of progress in a $50 a week pay claim. The same explanation was given three months later, in March 1982, when the state plunged into a far more severe power crisis. In the NSW Parliament, on 16 March 1982, Labor Premier Neville Wran savagely attacked the power workers, warning that unless their bans on over­ time and other limitations were lifted immediately a four-day week would be instituted to conserve power. " ... They have declared war on the community itself. The community should not bow to this blackmail", he declared. 5 The threat was implemented on the following Monday, with a system of 'double zoning' being introduced. It shut down one-fifth of the state's industry and curtailed domestic and commercial consumption, cutting out 10GWe or about 10 per cent of daily demand. 6 Work bans were lifted the next day and two days later double zoning ended. 7 Less severe power restrictions continued for over a month. But even when they ended Landa was quick to make clear that further restrictions and blackouts were likely to recur over the ensuing winter. 8 - 45 - What were the causes of the desperately strained state of the NSW power system? Various explanations were produced during the period of developing crisis. Undoubtedly the severe drought in NSW which cut back the Snowy Mountain poweravailable·to service peak demand, coupled with record peak demand (some 20 ger cent higher than the previous year), was a contributor during May 1981. So too were the maintenance bans·in March 1982. But beyond these lurk more endemic problems. Although their symptoms are tech­ nical, their cause is political and economic, and they have long roots stretching right back to the 1950s. THE HISTORICAL BACKGROUND The Electricity Commission of New South Wales (ELCOM) was established by the NSW Labor Government in 1950. Its responsibility was to generate and provide bulk distribution of electricity for the state. Reticulation of electricity, however, was to remain in the·hands of local bodies. 10 Prior to the establishment of the Commission, the generation and dis­ tribution of electricity had been carried out by a variety of public authorities and private companies. The new Act integrated the generating and distribution activities of the public authorities into the Commission and gave it the power to acquire the private companies that had been engaged in electricity supply. In the following years the Electric Light and Power Supply Corporation Ltd. and the Parramatta and Granville Electricity Supply Co. Ltd. were absorbed. At the·time the Commission was established the state's electricity supply industry was in crisis. There had been blackouts and many of the rural a·reas ·of the state were without electricity. In addition, numerous tariffs existed in different parts of the state, reflecting the whims of the various public and private bodies involved in electricity generation and distribution. It was also a period Of buoyant economic growth. Post-war industrialisation required guaranteed supplies of cheap electricity, whilst an increasing array of electric domestic appliances boosted domestic demand. It was to resolve this crisis that the state government moved to estab­ lish a centralised public institution to coordinate and promote the use of electricity in the state. The move followed the establishment of similar bodies in other states - the State Electricity Commission of Victoria (1921), the State Electricity Commission of Queensland (1937), the Tasmanian Hydro­ Electric Commission (1944) ,and the Electricity Trust of South Australia (1946). In spite of the fact that in Victoria and South· Australia these author­ ities had been set up by conservative governments, the establishment of the Commission provoked an outcry from the conservative opposition in NSW. The Electricity Commission Bill was claimed to embody "the socialist principle of control and State monopoly".ll However the charge did not reflect a true ideological gap. As in the other states, private enterprise had shown little willingness or capacity to establish and coordinate the centralised electricity system. The enormous amounts of capital required for power stations and trans­ mission lines, the high costs of maintaining an even tariff level across the state, and the perceived necessity to maintain cheap rates to encourage growth, were not attractive. There were more profitable investments elsewhere. - 46 - Indeed, it had been a state Liberal/Country Party Government which had made the first moves towards establishing a central electricity authority in NSW. In 1937 it had commissioned a report from a British firm of consulting engineers (Rundel, Palmer and Tritton). The report had outlined the following advantages of a centralised system: (i) economies in regard to capital expenditure; (ii) economies in regard to working costs (yielding reduced tariffs) ; (iii) uniformity of tariffs to bulk supply customers; (iv) regularity of supply and greater efficiency; and 12 (v) facilitated financing of future developments. In addition to these, technological developments in generation and trans­ mission, economies of scale in generating units, and benefits from locating generation near fuel sources rather than population centres, all seemed to favour a centralised system. THE COMMISSION AND THE GOVERNMENT The Commission was established under the Electricity Commission Act (1950) with powers to generate its own sources of income through sales of electricity. For the NSW Government, the objective of the Commission was to "expedite a better electricity supply to the public".13 The Commission was quick to interpret this as a carte blanche to pursue a policy of maximising the electricity supply to the state, turning to good advantage those sections of the Act which entitled it to not only meet demand but also to "promote and encourage" the use of electricity.14 Thus, although the Commission was constrained from maximising profit, it was able to pursue a strategy of maximising growth by providing low tariffs for large blocks of power. By utilising internal funds (depreciation allow­ ances and retained surpluses), public borrowings, and government funds it was ~ble to outlay vast sums of capital to expand transmission and generating facilities throughout the state. And by siting its new large power stations (such as Wangi, 1956-60; Vales Point, 1963-6; and Munmorah, 1967-9) on the coal-abundant regions of the central coast, it was able to attract industry to the power stations, simultaneously sharply cutting back fuel transport and transmission costs and allowing extremely low incentive tariffs to be offered. This restructuring produced a steady decline in the real cost of deliv­ ered electricity in the 1950s and 1960s. However, it would be simplistic to attribute this purely to "economies of scale". The effects of the relocation, the greater fuel efficiency of modern power station technology, and increas­ ing levels of productivity in the coal industry, all combined to produce the cost decline. In the period from 1953-4 to 1972-3 the real cost of fuel per unit of generated electricity for NSW power stations dropped by more than 80 per cent. 15 - 47 - The result was to produce clearly perceived benefits for industry, the community and government. The Commission had a high level of credibility and its plans and strategies were largely unchallenged. There was little interest in the fact that its high level of centralisation and rapid growth was producing a powerful institution answerable only to itself. Although its Act specifies that full and accurate minutes must be submitted by the Commission to the Minister16 and that its operations are "subject to direction and control of the minister"17, in practice the Commiss­ ion has operated independently from parliamentary and ministerial supervision almost from the outset. The technical complexity of coordinating and developing an electricity supply industry on a large scale provides a powerful tendency for control of energy planning and the implementation of decisions to become the province' of a small group of people. Styled by Saddler as "the energy establishment",' this group is composed of a narrowly trained group of technical experts who are often ideologically close to private enterprise and have adopted an understanding of their role as being restricted to supply augmentation.